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Austin needs more apartments

Not enough in the pipeline, experts said

Premium content from Austin Business Journal by Cody Lyon, Staff writer

Date: Friday, November 11, 2011, 5:00am CST – Last Modified: Friday, November 11, 2011, 1:01pm CST


Commercial Real EstateResidential Real Estate

Cody Lyon
Staff writer – Austin Business Journal

Austin apartment developers can’t keep up with demand.

In the past year, 30,000 people have moved to the Austin area, while only 1,065 new apartments came online during that time, according to Apartment Realty Advisors.

The influx of new residents isn’t slowing, and apartment building isn’t getting much more prevalent.

According to Austin’s planning department, about 4,800 apartment units spread across 23 projects are on the drawing board. But those projects still need city approval and may lack financing and firm plans. In all, 317 units at six projects are actually under construction, city planners said, and another 563 units across four projects have city approval but haven’t started construction.

Recent data from McGraw Hill Construction is on par with that. It indicates apartment building here is actually down 21 percent for the first nine months of 2011 versus the same time in 2010 — 1,979 units in 2010 versus 1,569 in 2011, said Phil Thoden, president and CEO at the Austin Chapter of the Associated General Contractors of America.

Compare that to the boom time around 2000, when developers added about 16,500 new units to the Austin metro market, according to commercial real estate data company Reis Inc.

Austin apartment developers have much to do to catch up, and some think they will. Thoden cited McGraw Hill’s projection that multifamily construction starts will increase roughly 18 percent next year.

That would provide the sector with some breathing room, but it won’t level out the market. Occupancy rates in most parts of the city hover around 95 percent, and rents have skyrocketed in some areas.

Factors such as the subprime mortgage meltdown and unemployment among young people are reducing people’s ability to buy homes, which combined with people seeking to live more urban lifestyles are boosting demand for apartments, said Bob Voelker, the business development coordinator for law firm Munsch Hardt Kopf & Harr PC’s real estate group. As a result, there’s a “need for a lot more apartment development.”

But meeting that need will be inhibited by the availability of financing, which is adversely affected by the vulnerability of equity funding sources in places like New York and Chicago, saidPatton Jones, principal at Apartment Realty Advisors.

Meanwhile, Austin’s zoning and other building regulations further slow development, he said.

Despite such constraints, some still see abundant opportunities in the local multifamily market.

When real estate veterans Steve OdenCraig Hughes and Eric Taylor formed their construction-development team — Oden, Hughes Taylor Construction LLC — about a year ago, they knew they wanted to build apartments in Austin.

Oden, Hughes Taylor Construction plans to break ground on Phase One at its Landmark Double Creek, a 293-unit project at the northwest corner of I-35 and Onion Creek Parkway, in early 2012. By the third quarter next year, the company plans to start building phase one of the Landmark Southpark community on the southwest corner of South First Street and Slaughter Lane.

The projects, whose first phases total 569 units, will cost more than $100 million to build. Both projects, funded by interest-only construction financing, are projected to be finished in 2013.

“New product has been slow to arrive on the market,” Oden said.

The markets most likely to attract projects — and investor funds — are downtown and in Southwest Austin, said Charles Cirar, vice chairman of CBRE Group Inc.’s apartment investment division.

Unfortunately, land prices and building regulations in those areas make them the most difficult places to develop profitably, said Gary Guion, president of Seven Hills Commercial LLC.

Many developers are finding alternative forms of financing for projects.

“There is a large and growing class of developers in the multifamily market — real estate investment trusts — that’s bypassing the traditional bank construction financing entirely and self-funding construction projects on an unsecured basis,” said Daniel Hogan, director of research at Red Capital Group LLC.

Public and large private real estate investment trusts, or REITS, that can raise low-cost funds in the corporate bond and equity markets are busy taking advantage of that opportunity, he said.

“Right now, REITS and similarly motivated private real estate equity firms are behind at least a dozen multifamily and student projects in Austin,” said Joseph Mandeville, vice president of Red Capital Group LLC.


Written by codylyonreporter

January 28, 2012 at 1:28 am

Posted in Uncategorized

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